The Housing Bubble
"Anatomy of a Meltdown: The Credit Crisis" by Alec Klein and Zachary A. Goldfarb of The Washington Post is a comprehensive, readable account of the housing boom and bust.
In the first section of this three-part series, they trace the bubble's roots to fiscal and monetary policies adopted after the collapse of the Internet bubble.
The government's efforts to counter the pain of that bust soon pumped air into the next bubble: housing. The Bush administration pushed two big tax cuts, and the Federal Reserve, led by Alan Greenspan, slashed interest rates to spur lending and spending.
Low rates kicked the housing market into high gear. Construction of new homes jumped 6 percent in 2002, and prices climbed. By that November, Greenspan noted the trend, telling a private meeting of Fed officials that "our extraordinary housing boom . . . financed by very large increases in mortgage debt, cannot continue indefinitely into the future," according to a transcript.
Klein and Goldfarb use several lively scenes to describe the ensuing frenzy that gripped the housing market.
The young woman who walked into Pinnacle's Vienna office in 2004 said her boyfriend wanted to buy a house near Annapolis. He hoped to get a special kind of loan for which he didn't have to report his income, assets or employment. Mortgage broker Connelly handed the woman a pile of paperwork.
On the day of the settlement, she arrived alone. Her boyfriend was on a business trip, she said, but she had his power of attorney. Informed that for this kind of loan he would have to sign in person, she broke into tears: Her boyfriend actually had been serving a jail term.
Not a problem. Almost anyone could borrow hundreds of thousands of dollars for a house in those wild days. Connelly agreed to send the paperwork to the courthouse where the boyfriend had a hearing. As it happened, he was freed that day. Still, Connelly said, "that was one of mine that goes down in the annals of the strange."
http://www.washingtonpost.com/wp-srv/business/creditcrisis/